Cadila Healthcare, Torrent Pharma eyeing potential merger

"More clarity on the proposed structure, valuations can be expected in the next six months," a source said adding that the merger may or may not fructify.Ashwin Mohan | ET Now | August 21, 2017, 13:53 IST

The domestic pharmaceuticals sector may be set for a shake-up as Ahmedabad headquartered Cadila Healthcare led by Pankaj Patel and the Mehta family backed Torrent Pharmaceuticals are re-evaluating a potential merger between both the companies, multiple sources familiar with ongoing negotiations told ET NOW on the condition of anonymity.

"The proposed merger plans are a nascent stage and the promoters of both Cadila Healthcare and Torrent Pharma have held preliminary discussions for the same. There would be significant benefits in terms of achieving the desired size and scale and synergies in terms of complementary overseas markets like Russia and Latin America. More clarity on the proposed structure, valuations can be expected in the next six months," said one of the sources cited above, adding that the merger may or may not fructify based on the progress of negotiations.

Based on current statistics available on the exchanges, if the deal goes through, the resultant merged entity of Cadila Healthcare and Torrent Pharma would command a market cap of nearly Rs 70,000 crores and move into a stronger number two position and inch closer to Sun Pharma, the leading domestic drug-maker in terms of market value with a m-cap of 1,13,616 crores. Cadila Healthcare is already at the number two position with a m-cap of Rs 49,088 crores followed by Cipla, Lupin & Aurobindo Pharma. The combined annual standalone sales of Cadila Healthcare and Torrent Pharma stood at Rs 7867 crores as of March 2017.

"This proposed merger would help facilitate the long -term strategic objectives of both the promoter groups," added a second source. " This possibility has been discussed by both companies in the past as well and it is being considered again," said a third source on the condition of anonymity. ET NOW was the first to report the possibility of a merger between both the companies in September 2013.

In response to email queries from ET NOW, Cadila Healthcare said, "We deny this news," and a spokesperson for Torrent Pharma said, " This is rumour. We strongly deny this rumour and any such kind of a development.

Cadila Healthcare promoters holds 74.79% stake in the company while Torrent Pharma promoters hold 71.25% stake. According to the 2017 annual report of Cadila Healthcare, the company's business in Brazil faced several challenged mainly in the form of recessionary economic situation, impacting the purchasing power of general public as well as as trade channels, de-growth of the relevant market where the company has a presence and the lack of significant product approvals from the regulatory authority. In contrast, Torrent Pharma's Brazil business saw a strong growth of 25% in top line vis a vis the industry growth of 14% with five brands achieving annual sales greater than 20 million Brazilian Reals.

In terms of key therapeutic areas of both the companies, there are overlaps in segments like pain management, gastro-intestinal , cardio-vascular and cardiac areas and dermatology with Cadila Healthcare also focusing on gynaecology and respiratory segments with Torrent Pharma also focusing on anti-diabetic , CNS ( central nervous system) and VMN segments.